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Pay As You Earn (PAYE) system is the way in which people who are employed on a full-time basis to pay tax. The amount that you owe is automatically deducted from your monthly or weekly wage based on what tax code you are on. This is shown on your payslip along with your National Insurance Contributions. This money is what goes towards funding pensions and the NHS along with other elements of the welfare state.

After filling in a P45 form when you start a new job, you will be allocated a tax code. It is the responsibility of the employee to notify the taxman when they start earning money and will lead to prosecution if this is not done.

Income tax is paid each time you receive an instalment of your wages so that there is not a huge bill at the end of the year and forwarded on to HM Revenue and Customs (HMRC) by employers. Employees will each receive a P60 form at the end of the tax year which outlines the both the complete amount of pay that you received in the previous tax year and how much tax you paid.